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AMD may get into the business of manufacturing chipsets after it opens a new chip factory in 2006, according to company chairman, president and CEO, Hector Ruiz.

For the most part, chipsets for AMD's processors are designed by partners such as Nvidia, ATI Technologies and Via Technologies, who often hire other companies to manufacture them.

AMD has previously said it was not interested in building its own companion processor-chipset products like those made by its rival Intel, but Ruiz said the company was not opposed to deeper ties with chipset partners that could involve manufacturing agreements.

If chipset vendors farm out chipset manufacturing to AMD, the company would benefit in various ways. For example, AMD would generate additional revenue from manufacturing capacity that would otherwise sit unused. It would also have increased control over the process of manufacturing chipsets, which are used in tandem with AMD's chips to control the flow of data around a system.

Right now, AMD did not plan to start developing its own chipset products for the mass market, Ruiz said.

AMD will have the capability to take on additional manufacturing work by 2007, after a new state-of-the-art chip fabrication plant ramps up to full production in Germany.

Growing shipments of emerging products such as its low-cost Geode chips could take up some of that excess manufacturing capacity, but financial analysts are curious whether AMD has other plans in mind for its older chip-making equipment. About 1.5 million silicon wafers were produced each year to support the chipset needs of companies other than Intel, Ruiz said.

"It's entirely possible that some of that [excess] capacity can be part of a partnership with a chipset manufacturer," Ruiz said.

In any event, AMD definitely planned to deepen relationships with its chipset partners in coming years, which could help it produce better chips, he said.

AMD made a limited number of chipsets to support new processors, but the vast majority of the chipsets for its products were made by third-party vendors, principal analyst with Mercury Research, Dean McCarron, said.

In the past, AMD simply hasn't had the capacity to build its own chipsets nor the desire to enter a low-margin market that requires research and development expenditures, he said.

Intel claims it can produce a more complete product when the processor and chipset are designed together from the beginning of a project. The company's current model is its Centrino mobile technology, which consists of a processor, chipset and wireless chip designed to work together to lower power consumption and improve performance. Intel is expanding this design concept to desktops and servers as part of its platform strategy.

Its chipset business also allowed the company to squeeze more productivity out of older factories that would have otherwise sat idle, McCarron said.

Chipsets were far less complex than microprocessors and didn't require the most advanced processing technologies, he said.
Lastly, Intel's huge lead in micropro-cessor market share made it harder for the company to grow without taking on more of the silicon that ran a computer, McCarron said.

AMD, on the other hand, has consistently maintained that its server and desktop customers want the freedom to choose their own chipset suppliers in order to meet different customer needs.

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